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Private Sector, Public Good

What role, if any, does business have in creating social good? A new seminar series at Harvard Business School tackles this complex question.

BY DINA GERDEMAN

Should business play a role in supporting public institutions, and perhaps addressing the world’s social challenges?

When Harvard Professor Rebecca Henderson asked her colleagues and business executives that question over the last few years, the reaction was often rather skeptical. Many believe this is not what business does or should do, Henderson said.

“They say the answer is regulation or the answer is taxation,” said Henderson. “The idea that firms can set themselves up for public good is viewed with suspicion—in my view for very good reasons.”

Yet more than three dozen faculty and doctoral students from a variety of institutions gathered January 30 to give the idea serious consideration during the first of 13 HBS workshops on the subject. The “Business and the Public Sector” seminar series, which runs through May, is designed to induce lively conversation, build a community of scholars, and create a research agenda exploring the possible role of the private sector in shaping the institutions of capitalism.

Henderson, who co-hosted the event, began her presentation by suggesting that talking about business and the public sphere was like “dancing about architecture.” Business often has no incentive to grapple with public sector problems, and those businesses that choose to embrace a ‘stakeholder’ orientation may be perceived as misusing shareholder funds or as trying to subvert democratic institutions, she said.

She suggested, however that there are three reasons to at least explore the topic including:

Growing global corruption, particularly when business gets close to the public sector and tries to skew the rules in its favor.

Environmental pressures, including the risk that we could destabilize the climate through the emission of green-house gases.

Poverty and inequality, with fewer people taking greater pieces of the earnings pie.

“Should business get involved?” Henderson asked the group. “If I could choose, I’d like a renewed democratic process and appropriate regulatory regimes. I believe that these problems are usually best dealt with by the state, but in many cases that is not happening.” Moreover the private sector has resources and capabilities that the public sector does not and, potentially, a substantial business interest in seeing the public sector succeed. “Sitting in a business school, this is something we should look at very seriously.”

Henderson noted that there are opportunities for firms to address public goods problems and make money at the same time, citing the example of IBM reducing electricity consumption significantly between 1990 and 2012 and saving $477 million in the process.

The role of academics in this process, she said, is the traditional one: to think clearly, see what is true, not what we wish was true. “Once we are thinking clearly about these things, (we) can be a source of ideas in the world.”

POTENTIAL INQUIRY

Henderson identified two broad areas of inquiry to consider. First, she suggested it might be worth exploring the potential role of “inducement” mechanisms—including regulations, taxes, and ownership structures—in changing the constraints under which firms operate. Are there changes that would make it easier for business to contribute to the public good? Would these kinds of shifts be desirable or would they have unexpected side effects?

And second, she posed the fundamental question of whether it is feasible or desirable to think about changing firms themselves. Can firms create shared value? Can industries regulate themselves? What are the responsibilities of managers? Does “purpose” matter?

If academics chose to focus on these particular areas of study, it just might provide the kind of encouraging push that companies sometimes need to make changes.

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